And Speaking of Black Box…ISP Licensing is the Original Black Box

With all the discussion on “black box”, I’m reminded of the original black box–ISP licensing.

Every now and then we see the resurgence of “voluntary collective licensing” or what I call ISP licensing. This is the idea frequently associated with the copyleft that ISPs would charge customers a flat fee for music (enter the black box) that would be distributed to all artists, songwriters, producers, mixers, publishers, copyright owners, etc., on some basis nobody ever figured out.

This, of course, is the blackest of all black boxes. Realize that the only way this really works is for the government to impose the structure on artists and songwriters so that everyone would be forced to participate–and I would bet that will come with a liability safe harbor for the ISPs and their users.

That’s essentially what the copyleft tried to get passed in France in 2005 as “global licensing” (as reported by UPI):

Legislation that would legalize music and video file-sharing on the Internet is on the table in France.

In a stunning move, Socialist lawmakers in the National Assembly Thursday night inserted an amendment in an anti-piracy bill that would establish a low-cost license allowing sharing of music and film files.

Knowing that yet another compulsory license would be unpopular, the copyleft promoted the idea as “voluntary collective licensing” however unwieldy that would be. Which is why it’s sometimes referred to as “legalized p2p”. (Of course, the French legislation–initially passed during the Christmas recess–was soundly defeated when the National Assembly returned to full session, and was followed by HADOPI.)

Realize that the royalty formula is based on something like the following formula, where $x is the monthly charge.

[($x * Number of Users)]/[Number of copyrights] = per track royalty rate for a month

Notice something about that formula from an individual artist perspective: Your royalty rate is a function of the number of users paying and the other copyright owners entitled to a share of the gross. And realize also that if the number of users increases at a slower rate than the number of copyrights, the result on a per song basis will always decline.

This is the part that sounds like a modified Ponzi scheme. As long as there’s new money coming in at a greater rate that the number of songs, your royalty goes up. If there are more songs than new money, your royalty goes down.

As there’s a relatively finite number of Internet users and there’s an infinite number of new songs being written, it is pretty near inevitable that ISP licensing will create an ever declining royalty rate.

For those interested in a deeper dive on the topic, I refer you to these sources:

An opposing view (in which I am cited): Andrey Spektor, How “Choruss” Can Turn Into a Cacophony: The Record Industry’s Stranglehold on the Future of Music Business, XVI Rich. J.L. & Tech. 3 (2009), http://law.richmond.edu/jolt/v16i1/article3.pdf

None of these ideas have ever actually come to fruition exactly, although one hatched at–of course–the Berkman Center had a nice repertoire of Chinese, Vietnamese and Cuban music if memory serves. The other was called Choruss which got press but no real purchase that I noticed. There were several efforts at this ISP licensing black box that all seemed to cluster around the 2005-2010 period (Playlouder being the better thought out version, although still wanting in my view). What is hopefully the final gasp of ISP licensing came up in Canada in 2010 and quickly went away.

The most interesting part to me is that I fail to see how anyone could ever believe that we should all rely on the black box from ISP licensing.

Here’s an opinion piece I wrote about Choruss with my friend and long-time songwriter advocate Rick Carnes, President of the Songwriters Guild of America, that should give you a pretty good idea. (The post originally appeared in Content Agenda, a great blog that seems to have unfortunately vanished):

Choruss hits a sour note

By Rick Carnes; Chris Castle

December 30, 2008

In early December, Wired reported that some music labels were talking to universities about building a flat fee for file-sharing into tuition, allowing students to continue downloading music “without fear of legal reprisal”. The fees would be collected by a non-profit organization, Choruss, which would then distribute revenues back to participating record labels.

The proposed Choruss music service appears to be an idea whose time has passed. While creators work hard to support cooperative business models that respect copyright and economic rights online, Choruss essentially waves a wand of legality over bandwidth-hogging file “sharing” programs without any of the accountability required of legitimate services like iTunes and Hulu.

Creators are unable to control the distribution of their recordings through file “sharing” on university networks, and Choruss offers nothing to change that affront. Legitimate services such as iTunes have been wildly successful operating within the laws and recognizing the economic rights of artists while offering a great consumer opportunity. If Choruss “legalized” illegal file “sharing”, why would any user ever go to iTunes again? What would happen to the considerable investment already made in legitimate music and video services online, not to mention the network infrastructure that delivers content to consumers?

The promoters of Choruss would have universities hide a music “tax” in student tuition bills paid by all students—whether they download illegally or not. (This charge would presumably be paid by scholarships, student loans and parents alike.) Choruss promoters rely on granting universities and students a “covenant not to sue” by some rights holders–a nuanced, untested, flimsy, and complex legal strategy that does little to shift the risk of prosecution for copyright infringement away from users. Choruss would have students believe their legal theories magically allow users to continue downloading without fear of consequences—and the nuances of the legal theory will be lost until the student ends up in the courtroom wondering what happened.

Why is the theory doomed to fail? Because there will be thousands of copyright owners who do not participate in Choruss. It seems highly unlikely that Choruss will be able to sign up all copyright owners in the universe, or even most. And note—the word “indemnify” does not appear in Choruss’s pitch materials. If the Choruss legal theory is such a great idea, why doesn’t Choruss indemnify the universities and students from any claims? What are the students paying for exactly?

The gravest concern to creators, however, is that Choruss would have virtually no accountability to the songwriters, artists, musicians and vocalists who fuel the Choruss business model. The program offers no solution to accounting to creators for file “sharing” uses—campuses would merely “estimate” usage. Choruss stands in stark contrast to ASCAP, BMI, SESAC and SoundExchange, all of which spend considerable effort in tracking actual usage of the works they are permitted to license to be good fiduciaries to their members.

What will the long-term effects be on the music business? Under the Choruss model, “estimates” of p2p traffic will suffice for “success”—which means that major label records will be rewarded because p2p is a reactive technology, meaning that users typically go to an illegal service to look for a specific track, not to find out about new music. “Estimates” will inevitably reward artists who are getting or have gotten a big marketing push from major labels—not indie or niche artists.

Choruss seems to plan on extending this plan to ISPs if it is “successful” on college campuses. It is hard to see why any ISP would want to be the collection agent for Choruss when the legitimate music services could easily be wrapped into a broadband or other ISP offering.

While legitimate services offer all of the accounting resources and control necessary to run a successful business, Choruss is lost searching for spare change under the cushions in a house of cards.